The Securities and Exchange Commission sued two District men yesterday, charging them with improperly soliciting more than $1.3 million for a real-estate-based Ponzi scheme by preying on fears about neighborhood gentrification.
Robert L. Hall Jr., an elected D.C. advisory commissioner for an area near Union Station, and his former associate Carletus Willis bilked more than 150 investors in 18 states and the Caribbean, the SEC charged.
Federal prosecutors in the District also filed criminal conspiracy and mail fraud charges against Willis, 30, yesterday.
"The principal targets of the scheme appear to be unsophisticated African American investors with little or no investment experience," SEC enforcement lawyer Kenneth R. Lench said in an interview. Lench said about one-third of the victims had roots in the greater Washington region.
Regulators allege that Hall, 32, headed the operation through his role as chief executive of the D.C. company First United Financial Group LLC. Hall falsely touted the company as a "financial services powerhouse" and called himself "the Minister of Finance" who could offer "biblically-based financial instruction," according to court papers.
No criminal charges were filed against Hall yesterday, but he was formally named as a co-conspirator in the criminal filing against Willis.
"Willis, Robert Hall, and others would falsely assure . . . clients that their principal was going to be returned when, in truth and in fact, they knew otherwise," wrote Assistant U.S. Attorney Steven J. Durham.
Hall said in a brief interview that his lawyer at the Federal Public Defender Service had instructed him not to comment. Willis could not be reached for comment.
The men promised they would use the money they obtained to make real estate investments, particularly in the Trinidad neighborhood of Northeast Washington, according to the SEC suit. They said in offering documents that they hoped to help residents of "abject areas, who would normally be displaced by the market pressures of gentrification," by pooling their funds and eventually giving them access to affordable mortgages on redeveloped condominium units.
To sweeten the deal, Hall and Willis used a Web site, seminars and classified ads in The Washington Post to promise investors they would win returns of up to 15 percent a month, or 180 percent a year, court papers said. Investors had to put up at least $2,500, not including an administrative fee, to start.
In fact, government lawyers say, First United never put any of the money into real estate investments and the company never posted a profit. First United's leaders used $883,926 to pay "purported profits" to early investors, and Hall and Willis personally made cash withdrawals of more than $199,500, the SEC said. The company also paid more than $34,100 for house and car payments, child care fees and other personal expenses for Hall, the suit alleged.
First United, which was incorporated in March 2001, rapidly declined. By 2002 it was avoiding calls from bill collection agencies and wary investors, according to court papers, while many investors who sought a return were sent checks that bounced.